Satisfied customers are loyal customers who stay longer and refer more new business, leading to increased shareholder value in the form of bottom-line earnings.
A new study has empirically proved the link between improved customer satisfaction, greater profits and a higher price-to-earnings ratio. The Satmetrix Fall 2001 Customer Loyalty Index/Price Earnings Study reveals that the price/earnings ratios of companies with above average loyalty scores are more than double that of their competitors – a figure that translates into US$1 billion in additional market valuation for even the smallest Fortune 1000 firm.
Few marketers would question the logic that churn costs money; that it costs much more to acquire a new customer than to retain an existing one; and that profit margins from long existing customers are generally much higher than from new customers. Even fewer would believe that simple customer satisfaction measurements, by themselves, will drive up profits. Measurements are simply indicators that something is either working or not: it’s the action that follows the measurements that counts.
One company that has measured and followed the results with action is online marketplace, eBay. eBay consistently generates high customer loyalty index scores, which are directly tied to best practices that the company has implemented. A senior executive is responsible for customer satisfaction and is empowered to manage change within the company; training for customer facing staff, quarterly tracking of satisfaction ratings, measurement of customer satisfaction and the creation of an escalation team that resolves customer issues. eBay uses a Satmetrix Systems customer feedback system to enhance customer satisfaction and loyalty in real time.
The study also found that, generally, as customer satisfaction increases, so do retention and referral rates. Those companies that ranked highest received a disproportionate amount of benefit. Some 57% of customers at leading insurance carriers has been with the same company for more than ten years: more than twice the industry average. In the Internet industry, companies with the top ratings boasted referral rates approaching 90% – the average rate is just 62%.
Most important objective
According to Satmetrix president and CEO, Andre Schwager, the report empirically proves what has always been intuitively understood: if you want happier shareholders you must create happier customers. “Customer satisfaction is the single most important objective of all companies, and is the essential ingredient that ultimately defines business success.”
The study was conducted using data from Satmetrix’s own customer base, combined with an external opt-in survey of more than 16,000 business and consumer respondents. Data was used to compile customer service ratings of leading businesses in seven key industries and 32 industry segments. The data was then compared with publicly available financial information.